Health Care Bill: Market Reaction the Day After the Vote

The historic health care bill passed late last night, and no matter where you fall politically on the issue, it's a major change to how health care will be run in this country.  For those who think this is economic Armageddon, it will be interesting to see how this plays out in the coming months and if their fears are ever realized.  In the meantime, it will be telling to see how the market reacts to the health care bill, as that is perhaps a more important measure of a bill's success than the latest opinion poll.

Given the purpose of the bill, you might think health care stocks would fall. After all, the point of the health care bill was to rein in the profits and ensure that health insurers don't drop certain people from their rolls--such as people with pre-existing conditions who are more expensive and so less profitable. However, the reason that the mandate was instigated was to balance out this prospect--because insurers would lose money to those with pre-existing conditions, they'd make money from a mandate on younger, healthier clients. That's the theory, at least.

So how did this play out Monday morning? From the Wall Street Journal:

"Hospital and Medicaid managed-care stocks increased Monday, the morning after the U.S. House approved health-care legislation aimed at expanding coverage to millions more Americans.

Passage of the measure promises relief to hospitals providing uncompensated care to uninsured patients. It also plans to expand Medicaid enrollment, thereby boosting business for health insurers focused on providing coverage through the government program for lower-income and disabled Americans."

This detail is also interesting:

"Passage of health reform is expected to remove uncertainty and jump-start investment in the sector overall, and stocks from a variety of health-care subsectors, including pharmaceuticals, pharmacy benefit managers, drug wholesalers and device makers, traded at least slightly higher Monday."

If health care opponents were right, you'd think that stocks might tank given the bill's reported flaws.  At the same time, this is what usually happens when a bill passes--because there's certainty, investors breathe a sigh of relief.  The market hates uncertainty, and a process as contentious and drawn-out as this one will no doubt lead to some amount of relief on Wall Street.

On the one hand, you can't really go by the morning-after results in the market.  We'll have to see how this plays out in the months--and years--to come.  But it's important to recognize that this bill is not as bad as some of the hyperbole might have suggested.  While some on the right think this is a "government takeover," it's not; it's just rewriting the law.  There's not even a public plan.  That said, the mandate may make some people very annoyed when it kicks in, but it's to benefit those who might have been kicked off the rolls in the past, or were denied health insurance. 

Basically, you can't please everybody, but as the market today shows, it is at least not health Armageddon for investors.